How Supply Side Economics Exploded the National Debt While Increasing Economic Inequality

[JohnEngelman]

In his title to Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity Brian Domitrovic claims that supply-side economics “restored American prosperity.” Prosperity for whom? According to Congressional Budget Office numbers for after tax income, in 1980 the richest fifth of our country had eight times the income of the poorest fifth. By 1989 the ratio was more than twenty to one. According again to the CBO, the greatest increase in after tax income went to the best paid one percent of the United States. After tax income for the bottom 60% declined.

In the first chapter of Econoclasts Brian Domitrovic wrote, “The economic results that supply-siders foresaw at the time [the late 1970’s to 1980] did in fact come to pass.”

Not really. During his 1980 debate with President Carter Reagan, who had spent much of his political career condemning deficit spending, claimed that his economic policies would balance the budget by 1983 “If not sooner.”

In 1980 the budget deficit was $74 billion. In 1983 it had grown to $208 billion.

https://www.thebalance.com/us-deficit-by-year-3306306

By the time President Reagan left office the national debt had grown from approximately $907,701,000,000.00 to more precisely $2,602,337,712,041.16.

https://www.thestreet.com/politics/national-debt-year-by-year-14876008

In Chapter Five Domitrovic wrote, “the inflation crisis was in full swing before the OPEC shock of late 1973…In the 12 months before the OPEC announcement consumer prices in the United States increased by 8 percent.”

In October the Organization of the Petroleum Exporting Countries announced that it was raising the price of its oil to punish the United States for helping Israel in the Yom Kipper War.

In October 1972 the inflation rate was 3.7%. The average for 1972 was 3.2% The average for 1973 was 4.4%. The average for 1974 was 11.0%.

https://www.usinflationcalculator.com/inflation/historical-inflation-rates/

Domitrovic sees the rise in the price of petroleum as a result of the stagflation of the 1970’s, because he wants to blame the government and Keynesian economics. Let’s see which came first.

In 1972 the price of a barrel of petroleum was $3.60. In 1973 it was 4.75. In 1974 it was $9.35.

https://inflationdata.com/articles/inflation-adjusted-prices/historical-crude-oil-prices-table/

In 1972 the inflation rate was 3.2%. In 1973 it was 6.2%. In 1974 it was 11.0%.

https://inflationdata.com/articles/inflation-adjusted-prices/historical-crude-oil-prices-table/

In 1972 the unemployment rate was 5.2%. In 1973 it was 4.9%. In 1974 it was 7.2%.

https://www.thebalance.com/unemployment-rate-by-year-3305506

When we keep in mind that the OPEC Oil Embargo did not begin until October 1973, it should be clear that the increase in the price of oil preceded the increase in inflation and unemployment. The rise in the price of petroleum was not a result of the stagflation; it was the cause.

https://inflationdata.com/articles/inflation-adjusted-prices/historical-crude-oil-prices-table/

Republicans like to blame Keynesian economic policies for the stagflation of the 1970’s. For the four decades from the inauguration of President Roosevelt in 1933 to 1973, Keynesian policies resulted in reasonably steady job growth, growth in the per capita gross domestic product (GDP), and milder recessions. Republicans never liked Keynesian policies because they shifted wealth, power, and prestige from the business community to the government.

Republicans do not want blame the increase in the price of petroleum that followed the OPEC Oil Embargo, and the Iranian Revolution of 1979 for the stagflation because they do not want to acknowledge that foreigners they dislike had considerable control over the U.S. economy.

Keynesian economic policies were designed to fight the Great Depression. During the 1930’s the problem was not inflation, but deflation. Moreover, Keynesian economic policies were not designed to respond to a shortage in a natural resource essential to the U.S. economy.

 

[JohnEngelman]

The legacy of supply side economics has not been a restoration of the broadly based prosperity Americans enjoyed from the end of the Second World War to the inflationary recession of 1974. The legacy has been chronic deficits, a growing national debt, and economic inequality as great as the United States experienced right before the Stock Market Crash of 1929.

At the end of the Second World War in 1945 the national debt as a percentage of Gross Domestic Product was 114%. By the end of the administration of President Carter in 1980 this had declined to 32%.

https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287

During this time the top tax rate was as high as 94%, and never got below 70%. During the Reagan administration the top tax rate declined to 28%.

https://www.irs.gov/pub/irs-soi/02inpetr.pdf

At the end of the Reagan administration the national debt as a percentage of GDP had grown to 50%. Four years later, when President George H.W. Bush left office it had grown to 61%. It declined briefly during the Clinton administration, and it was 129% when Trump left office in 2021.

From 1945 to 1980 national debt as a percentage of GDP continued to decline during the wars in Korea and Vietnam.

During the Reagan administration military spending increased from $143.69 billion, during the last year of the Carter administration in 1980 to $325.03 billion during the last full year of the Reagan administration.

This was unnecessary and provocative. The United States was at peace. The Soviet Union was losing its war in Afghanistan. The Soviet Union was collapsing from within. It was dangerous to provoke the leaders of the Soviet Union with a nuclear arms race when they felt their country, and hence their power, disintegrating.

https://www.macrotrends.net/countries/USA/united-states/military-spending-defense-budget

During the Carter administration there was a six month recession. Unemployment reached 7.8%. During the Reagan administration there was a sixteen month recession. Unemployment reached 10.8%.

https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

An average of 2,600,000 jobs were created every year during the Carter administration. During the Reagan administration this declined to an average of 2,000,000 jobs created every year.

http://www.middleclassparc.com/jobs.html

The rise in inflation that followed the Iranian Revolution of 1979, and which subsided after 1982 was caused by fluctuations in the world price of petroleum over which neither President Carter nor President Reagan had much control.

If you want to learn what really happened during the Reagan administration, do not read Econoclasts. Read The Triumph of Politics: How the Reagan Revolution Failed, by David A. Stockman.

https://www.amazon.com/gp/customer-...=cm_cr_getr_d_rvw_ttl?ie=UTF8&ASIN=1610392779

Stockman was Reagan’s Director of the Office of Management and Budget from 1981 to 1985. Stockman makes it clear that, contrary to what Ronald Reagan claimed during the 1980 presidential campaign, it never was possible to cut taxes, raise military spending and balance the budget without making cuts in domestic spending the vast majority of Americans would have opposed, including a large minority of Republican voters. Farm and business subsidies would need to be completely eliminated. Social Security and Medicare would need to be substantially reduced.

Stockman ended his book by writing, “we’re spending 24 percent of GNP, compared to raising only 19 percent of GNP in taxes…The Republican Party should not have told the American electorate in 1984 that we don’t have to raise taxes. It wasn’t true.”

 

[Rightguide]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

 

[LukSkyFokker]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

JFC. I bet you can't even balance the ledger from your lemonade stand.

 

[pecksniff]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

There has been deficit spending at all times since the New Deal, but there has not been significant inflation at all periods.

 

[icanhelp1]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

(D)s MO is tax more to spend more believing that that decreases debt

 

[JohnEngelman]

The massive deficits and the increases in the national debt that began with Ronald Reagan happened because Reagan, Bush II, and Trump cut taxes for the rich and raised military spending.

We spend more on the United States Department of Offense than Russia, China, and a lot of other counties.





Nevertheless, with all that mullah we could not defeat the Vietnamese Communists in ten years, and we could not defeat the Taliban in twenty years. The U.S. military is an expensive government spending program that does not work. Someone should tell the Masters of War that they need to do more with less.

The reason we spend so much on this wasteful boondoggle is because military contractors are major Republican donaters, and because the military is the GOP jobs program.

 

[pecksniff]

(D)s MO is tax more to spend more believing that that decreases debt

No, believing that the spending does the country good, which it usually does.

 

[icanhelp1]

No, believing that the spending does the country good, which it usually does.

It's not about spending it's about over spending!

 

[pecksniff]

The OP is entirely correct about supply-side economics leading to economic stratification, a problem that deserves a lot more attention than it gets.

 

[JohnEngelman]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

The essence of supply side economics is that it is possible to cut taxes, spend more for the military, and balance the budget without cutting or eliminating popular domestic spending programs. The evidence of the Reagan administration is that it is not.

 

[pecksniff]

It's not about spending it's about over spending!

What is "overspending"? Spending more than you've got on hand, or spending more than the purpose requires? The latter is a matter of policy judgment.

 

[JohnEngelman]

Government spending more than they collect causes inflation, explodes the national debt and has nothing to do with supply-side economics or the free market.

The inflation of the 1970's was caused by increases in the world price of petroleum. The decline in inflation after 1982 was caused by deceases in the world price of petroleum. President Carter and President Reagan had little control over these fluctuations.

 

[Sh1ne0n67]

When was this Supply Side the speaker of the House?

This is not a sound economic thesis.

Yourself, you seem to be inclined to apply black and white thinking to a chaotic system.
(I speak mathematically and to the point of strange attractors.)
For example, your last post. It is just as easy to say that a weak President is easy to take advantage of
whereas a strong President garners respect with his trading partners who are then open to his arguments.

(Or, take Crimea under Obama and Ukraine under Biden, please! Vladimir says DA!
We spent six years screaming about Trump being his puppet, but the puppet master stayed home...)

 

[Sh1ne0n67]

The OP is entirely correct about supply-side economics leading to economic stratification, a problem that deserves a lot more attention than it gets.

We just went through a period of massive bottom-up spending and what we have enjoyed from it
was massive inflation and rents not being paid to the evil property owners with the subsequent repercussions.
One in four dollars of GDP is government spending and currently a lot of people, mainly in the Democrat Party
are saying the way out of our current malaise is more spending and the forgiveness of student debt.

Can you explain to us economically how that is going to play out?

 

[Chobham]

Throw in a Fed that believed it could print it's way out of any crisis.

 

[icanhelp1]

Throw in a Fed that believed it could print it's way out of any crisis.

Thank God BBB didn't pass, we can only imagine the effect on inflation that would cause. It's estimated that over 400 billion of the covid relief bills are still unaccounted for. Crazy shit. Who the fuck wants to their pay taxes with fraud at that level.

 

[LittleDixie]

The OP is entirely correct about supply-side economics leading to economic stratification, a problem that deserves a lot more attention than it gets.

Economic stratification is not a bad thing. It is a reflection of education, dedication, hard work and talent.

People make more money because they offer more value to others. A good author will sell more books than a bad one, a good musician will sell more tickets than a bad one, a good carpenter will demand more money for their work than a bad one. It is not a bad thing that some hard working/talented people get rich because others want to give them money voluntarily.

...in fact, one way that you can measure the value that a person contributes to others is by how much money they earn. That's not measuring their worth as a human being, but as a component of our economy.

 

[YDB95]

Who the fuck wants to their pay taxes with fraud at that level.

Give it a rest. Everyone knows your problem isn't really what your taxes are spent on, it's that you have to pay taxes at all.

 

[JohnEngelman]

Economic stratification is not a bad thing. It is a reflection of education, dedication, hard work and talent.

People make more money because they offer more value to others. A good author will sell more books than a bad one, a good musician will sell more tickets than a bad one, a good carpenter will demand more money for their work than a bad one. It is not a bad thing that some hard working/talented people get rich because others want to give them money voluntarily.

...in fact, one way that you can measure the value that a person contributes to others is by how much money they earn. That's not measuring their worth as a human being, but as a component of our economy.

What did Jeffrey Epstein do that was so valuable? What about Donald Trump? Larry Flynt made a fortune selling hard core pornography. Is that something we should reward? Japanese CEO's earn quite a bit less than American CEO's, but Japanese corporations usually produce better consumer goods. America's rich do not work any harder now than they did during the 1950's, but they pay lower taxes on more money.

 

[pecksniff]

Larry Flynt made a fortune selling hard core pornography. Is that something we should reward?

This is the Lit. Do you need to ask?

 

[JohnEngelman]

This is the Lit. Do you need to ask?

OK, so this is not a church bulletin.

My stories are rated PG-13. They would have passed the Motion Picture Code.

 

[LittleDixie]

What did Jeffrey Epstein do that was so valuable? What about Donald Trump? Larry Flynt made a fortune selling hard core pornography. Is that something we should reward? Japanese CEO's earn quite a bit less than American CEO's, but Japanese corporations usually produce better consumer goods. America's rich do not work any harder now than they did during the 1950's, but they pay lower taxes on more money.

If someone earns money through voluntary transactions without fraud or theft, then they have earned their money honestly. What they did to earn their money isn't relevant; no one needs to prove their contributions to you, or justify how much money they make. You and I get to choose who we reward by voluntarily giving them our money in exchange for their goods/service.

Just because someone else got rich from the voluntary contributions of others does not give you any right to say that they do not deserve it.

 

[JohnEngelman]

If someone earns money through voluntary transactions without fraud or theft, then they have earned their money honestly. What they did to earn their money isn't relevant; no one needs to prove their contributions to you, or justify how much money they make. You and I get to choose who we reward by voluntarily giving them our money in exchange for their goods/service.

Just because someone else got rich from the voluntary contributions of others does not give you any right to say that they do not deserve it.

Being rich is a matter of being born with rich parents, and/or being born with rare and valuable talents, and having a few lucky breaks along the way. I have the right to say they do not deserve it, and I just did.

 

[LittleDixie]

Being rich is a matter of being born with rich parents, and/or being born with rare and valuable talents, and having a few lucky breaks along the way. I have the right to say they do not deserve it, and I just did.

That is an infantile way to look at things. That's not how wealth works.

And I suppose you do have the right to say whatever you want. In the same way, you have the right to say racist things. Luckily, you saying things doesn't make policies.